The AUD/USD initially rallied during the trading session on Tuesday but get back gain rather rapidly. At this point, the market looks as if it is ready to threaten a major support level underneath, especially near the 0.67 level. Breaking down below that level will be a major turn of events, and it could cause quite a bit of downward pressure.
If we were to break down below the 0.67 level, that opens the possibility of the Australian dollar dropping rapidly, perhaps down to the 0.65 level initially, before further damage occurs. Rallies at this point continue to be selling opportunities, and therefore I think your best served to fade any signs of exhaustion. The Aussie dollar of course is highly sensitive to the commodity markets and of course the mainland Chinese economy. If both are struggling a bit, then I think we will more likely than not see problems with the Aussie dollar itself.
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- Ultimately, this is a situation where we continue to see the US dollar strengthened against almost everything, and this market won’t be any different. The Federal Reserve is going to keep its monetary policy type, as it must fight significant inflation.
- The fact that the Australian dollar is getting hammered will not concern the Federal Reserve much, because the trading balance between the 2 countries is minimal at best. I do think that there is a significant support level underneath, and it will probably hold.
Whether or not it holds for the long term might be a different question altogether, but in the short term, it certainly looks as if we have gotten a little overextended to the downside. The 0.69 level features not only previous noise via support and resistance, but also features the 50-Day EMA. This indicator is widely followed and has been a general barometer as to where you can see resistance. Because of this, I will more likely than not be on the sidelines until we get a little bit of a bounce, and then I will start shorting at the first signs of trouble for the Aussie. I have no interest whatsoever in trying to fight the overall trend, so at this point, I am waiting for the value to appear in the US dollar. As things stand right now it’s a waiting game.
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